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Hostile Takeover (Examples, Tactics) | Hostile Takeover Defense Strategy - YouTube
Channel: WallStreetMojo
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hello everyone welcome to the channel of
Wallstreetmojo friends today we are
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going to learn at tutorial on hostile
takeover there's a concept called
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hostile takeover as you can see it comes
under mergers and acquisition so let's
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learn that if you come down there is
history on French laundry service group
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Ellis is threatening a hostile takeover
uk-based rival Breton after the targets
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board of director repeatedly rejected
its cash and share offer this was on
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Thursday said it was taking over new
offer for 440 pence in cash and
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0.426 new Ellis shares of each Breton share straight to the
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shareholders the valued Breton at just
over 2 billion and elis is one of the
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flurry of foreign companies looking to
take over UK rivals was this year as the UK
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decision to leave EU that as European
Union has waited on the pounds making
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company valuation more attractive so
what is hostile takeover the French
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laundry service company elis is made of
hostile takeover offer valuing the company at
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over you know 2 billion you can see over here as it has mentioned and been
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highlighted the world would be able to
different place if there were friendly
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justice all over however not everything
happens on a friendly note in the
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corporate landscape hostility is a
common phenomena with when it comes to
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mergers and acquisition a noted
philosopher Lucas Seneca said he would
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dreads hostility too much is unfit to
rule so hence for a corporate landscape
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hostilities unavoidable and companies
have to be prepared for it
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the battle for corporate control has led
to many tectonic shift in the management
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structures of many large companies the
key factor that differentiates a hostile
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takeover from a friend one is that the
target company's management is against
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deal coming through in such a case
usually a targets boat recommends their
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shareholder to reject the offer by now
we know that a hostile takeover is an
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acquisition where a company does not
want to be purchased at all so many
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times the question arises that if a
company is not at all insane how is that
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it is being purchased
well the answer is that the hostile take
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only happens when publicly traded
companies means it it it only for the
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stocks water sold in the public horses let's see what
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are the tactics of the hostile takeover
a company is aiming at a hostile
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takeover can approach this by two major
ways namely first
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tender offer and second is called proxy
fight the tender offer happens when a
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company or a group of investor offer to
purchase the majority of the shares of
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the target company at a premium to the
market price and this offer is made to
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the board of director who may reject it
so in this circumstances that baduk in
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place offered directly to the shareholder the shareholder in turn may decide to accept
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the offer if they find merit in it only when the
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majority of the share will decide to
accept the offer the sale of the shares
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takes place let's see what is proxy
battle I'll show you some chart as you
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can see the proxy battle is an
unfriendly fight okay so public private
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it is uninformed unsolicited tender
offer so you can learn from this mind
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map the above decision tree I mean
diagram shows the entire process that
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goes behind your hostile takeover the
target offers is termed as hostile when
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the bidder deliberately chooses not to
inform the target company about the
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unsolicited offer naturally in such a
scenario a proxy contest will also be
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considered un applicable by the existing
management even a 5% purchase
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of shares of a target company or what is
termed as toehold position may be either
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considered hostile or friendly depending
on the situation actually it is
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intention behind the toehold purchase
that determines how the hostile takeover
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is viewed it could still be termed as
friendly if the purchases have earned by
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reduction of the transaction cost or
gaining a strategic position in the
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auction however if a toehold purchased
with done with the intention of gaining
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in or thority of what the management
will definitely be considered as hostile
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the path of hostile takeover seems to be
full of twists and turns a bid which
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started off as a friendly one initially
could also turn into a hostile one in
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the due course so what are the strategy
a defense strategy for this hostile
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takeovers since the hostile takeover bid
is unwelcome
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the target communities various hostile
takeovers different strategy reactive as
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well as the
preemptive factors the first is macaroni
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defense don't don't be surprised with
that quite a lip-smacking name isn't it
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on a more technical front macaroni
defense entails a company
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shooing a large number of bonds with the
situation that they must be redeemed at
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a high price if a company's taken over
when the bonds of a company are redeemed
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at an exceptionally higher priced deal
seems economically unappealing this
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defense strategy works in two prongs to
me after making the deal unattractive it
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also limits the power of the potential
buyer the expansion of macron even
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cooked has been used as an allergic
allegory to depict that the redemption
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of the bond at a higher price increases
the cost of the hostile takeover it is
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actually a tough nut to crack for a
potential buyer when the redemption is
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price of a bond increases let us assume
that a company A is forcibly trying to
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acquire a company B the management of
the target company does not want to go
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ahead with the deal because it might not
seem quite appealing to them or they do
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not have adequate confidence that A will
be able to manage the company
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successfully additional fears of the
corporate restructuring and layoffs also
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looms in such a case Company B might
decide to go for a macaroni strategy
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they measure bonds of 100 million
which will be redeemable at 200%
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of the face value hence whoever has invested $2,000 will have to
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be paid $4,000 which will inflate the
overall cost of the acquisition and win
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eventually you say the acquirer from
going ahead with the offer the second
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strategy that's known as poison pill a
poison pill is a very popular defense
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mechanism for a target company when it
uses shareholders rights issue as a
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tactic to make the hostile acquisition
deal expensive or less attractive for
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the Raiders see this strategy also acts
as a tool to slow down the speed of a
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potential hostile attempts in future
poison films are generally adopted by
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the board of directors without the
approval of the show it also comes with
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a provision that they write associated
with the rights which are associated can
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be altered or redeemed by the board when
acquired so this to indirectly
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compiled the direct negotiations between
the acquirer and the board so as to
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build a ground for better bargaining
power
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call he was an institutional investor he
was caught on the Netflix off guard in
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2012 by acquiring 10% stake in the
company the later responded by issuing a
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shareholders read plan called a poison
pill a move which called too low and a
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year later he cuts is holding to 4.5% and Netflix dominated
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its right isue plan in December 2013
I'll show you the article you can see
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this article Netflix adopts poison pill
2/10 of a kahin that was the guy that we
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were talking about so Netflix on Monday
it has adopted a stockholders write plan
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designed to prevent the activities
activist shareholders launching a
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hostile takeover which is also known as
the poison pill it has written the plan
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which is known to the investor as a
poison pill would Nick in if the
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individual or group tried to buy a
stable chunk of the company without
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approval from the Netflix board okay and
as it is written the defense move is
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direct response to notorious corporate
raider Karl who bought a 10%
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stake in the company in last week set of
Netflix alarm bell when he said that the
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company would be able to be tasty wait
for the tech giant already in the video
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business and Google and Amazon and
Verizon and so on and so forth so this
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was poison pill the third strategy is
called scorched earth policy scorcher
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Earth policy is a term borrowed from a
military balance most of the times in
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military generals order these soldiers
to destroy anything and everything that
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could be of potential use to the
opponent's army according to this
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defense tactic companies sell off the
most of the important assets or make the
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acquiring company enter into a long-term
contractual obligation the fourth
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strategy which is known which is known
as golden parachute technically golden
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parachute is defined as a contract
between the company and its top-level
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management which entails the that the
executors will be able will will be
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offered considerable benefits in case of
the later is terminated as a result of
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restructuring activity this benefits
usually include cash bonus stock options
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retirement package medical benefits and
of course a handsome see severe ins pay
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it is also used as a tool for entity
code mechanism or poison pill to
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dissuade any potential motive the
quantum of benefits of compensation
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promise to be of the of the company
might lead many acquirer to change their
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hostile takeover decisions ever since
verizon which agreed to by Yahoo the
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industry has been abuzz with the
exorbitant golden parachute that Marissa
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Mayer the CEO of Yahoo would be flying
within with in case the former decides
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to terminate her fifth strategy which is known as crown
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jewel this is quite a similar strategy
to the Scotch earth policy in this case
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the sale of the assets by the target
company during the hostile bid is
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focused mostly on its most valuable ones
that is called crown jewel this is done
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within the assumption that selling such
an assets will make the company less
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appealing to the potential acquirers
this might eventually compel the
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purchasing company to withdraw their bid
however there is another way in which
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the strategy can be implemented the
target company chooses to sell off most
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of its prized assets to a friendly
company also known as the white light
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and later on when the acquiring company
drops its decision for hostile takeover
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the target company again buys back its
assets from the white knight at a
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predetermined price the sixth strategy
which is known as the lobster trap
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another popular defense mechanism is
called lobster trap in this target
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company issues a mandate in which the
individuals with more than 10% ownership
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of the convertible securities which
includes convertible bonds preferred
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stock warrants and I deterred from the
transferring the security to voting
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stock so here these securities to here I
mean the individuals with more than 10%
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ownership are symbolic of big fish or
lobsters now the top hostile takeovers of
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all time I'll show you some of the
couple of examples the first one was
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AOLN times Warner which was close enough to in 2000 of 164 billion when AOLN
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announced it was taking over the much
larger and successful times Warner it
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was touted as one of the biggest deal of
the period the second one Sanofi Aventis
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and enzyme Corp which was which happened in 2010 of 24.5 billion dollar
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Sanofi put up a tough battle to acquire
biotechnological company called concern
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in 2010 it had to offer significantly
higher premium that they initially
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wanted to and assume control over around
90% of its target company
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the third example NASDAQ OMX
Intercontinental Exchange
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or and and versus the international
continental exchange 2001 and NYC
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Euronext it was approximately close
enough to 13.4 billion in
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2011 Nasdaq and intercontinental
exchange wanted to acquire nyac that
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his New York Stock Exchange with an
unsolicited and a bid
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however Nasdaq eventually had to
withdraw its offer amid directive
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the Antitrust Division of the US
Department of Justice the another
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example was a kahan enterprising Clorox
X which happened in 2011 it was
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approximately close enough to 12.6 dollars years ago carl
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launched a hostile takeover bid against
the caller ox he offered to take over at
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7.65 per share which was about 12% premium Clorox
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rejected the offer and used poison pill
strategy to safeguard itself from
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various such offers in future so what is
the effect of such hostile takeover the
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shareholders usually shares of the
target company have been seen to rise
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when a group of investor or acquiring
company perceived that the management is
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not maximizing shareholders value they
directly approach to the shareholders to
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buy their stock at a premium to market
value at the same time they engage in
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such in certain tactics to topple the
management in certain and create a
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notion amongst the public media and
Cheryl is that a new management is the
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need of the HAR so as we can see the
stock prices of Princeton jumped after
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euro 2 billion hostile takeover but by
Ellis you know you can see the above
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chart the jump in the stock price of
Prince and after the hostile takeover
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bit by Ellis it jumped directly to 1098
it as a result of this there is an
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additional demand with the shares in the
market
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what follows is bitter fight for the
control of the company hostile takeovers
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are nothing but our battle against the
existing management only when the
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shareholders have the equipment to judge
the vision of the management in
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juxtaposition to luring profits offered
by the hostile takeover and can some
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value can be realized out of it the
share price increases follow a rather
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correlated part in the share repurchase
process even if the hostile takeover
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eventually made this involve management
to make certain offers that are friendly
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for the shareholders usually this offers
a made so that the shareholders reject
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the hostile takeover bid most of the
times this often includes special
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dividends share repurchase spin-off all
of this measures dive drive up the price
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of the stock in the near term and long
term let us try to understand each of
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this offer in detail special dividends
are one of the time pay outs to the
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shareholders this boosts the sentiments
of the stockholders and make the stock
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appear more attractive mainly the
scenario when the interest rates are at
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low share buyback creates an increased
demand for the stocks and reduce its
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supply spin-offs our strategic decisions
to diverse non-core business units to
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show higher valuation employed more
focused vision and and business for the
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shareholders so let's make a final
conclusion over you well most of the
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companies put up a tough fight against
the hostile takeover it is not exactly
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clear why they do so many experts and
analysts are of the opinion that since
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the acquirer pays shareholders a premium
over the share price it is always
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beneficial for the target company
another side of the story is that the
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bidders take up a huge debt to arrange
for a funds in order to pay off the
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premium amount to the target company
shareholders this in turn drops the
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share value of the acquiring company
however some of the analysts opine that
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hostile takeover 7 adverse effect on the
overall economic when one company takes
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over the another one by false the
management may have limited or no
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understanding of the business model of
the target company they work culture or
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technology basically it will be an
acquisition without any synergies and
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such M&A activity can never be
successful in the long term in hostile
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takeover both the target company and the
acquiring company incurs heavy cost of
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Awe at all levels the target company
leaves in a constant fear of the hostile
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takeover which creates a sense of
insecurity amongst amongst them and
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hinders its progressive functioning as a
result the target company put a lot of
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cost in undertaking different strategies
however the outcome of the hostile
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takeover like every other mergers and
acquisition cannot be generalized and
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hence it is difficult to draw a
conclusion whether they are successful
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or not the cost-benefit analysis has to
be done or case-by-case basis some of
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the hostile takeovers have been doomed
while the other had resulted in industry
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consolidation and fairly strong company
thank you everyone
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